ERIC ED335389: Schooling, Skills, and the Returns to Government Investment in Education: An Exploration Using Data from Ghana. Living Standards Measurement Study, Working Paper No. 76.

69 Pages·1991·1 MB·English

by  ERIC

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DOCUMENT RESUME
ED 335 389
TM 017 004
AUTHOR
Glewwe, Paul
TITLE
Schooling, Skills, and the Returns to Government
Investment in Educations An Exploration Using Data
from Ghana. Living Standards Measurement Study,
Working Paper No. 76.
INSTITUTION
World Bank, Washington, D. C.
REPORT NO
ISBN-0-8213-1764-4; ISSN-0253-4517
PUB DATE
91
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DESCRIPTORS
*Developing Nations; Economic Impact; *Educational
Finance; Lducational Policy; Educational Quality;
Elementary Secondary Education; *Equations
(Mathematics); Estimation (Mathematics); Federal Aid;
Foreign Countries; *Government Role; Human Capital;
Investment; *Mathematical Models; Outcomes of
Education
IDENTIFIERS
*Ghana; *Human Capital Theory; Return on
Investment
ABSTRACT
Investments in schooling are often regarded
as
essential for economic development, implying that such
investments
have high rates of return in developing countries. This
paper
examines the accuracy and usefulness of estimates of
rates of return
to formal schooling based on the standard human capital
model of G.
Becker and J. Mincer. Focus is on whether failure
to account for
differences in ability and school quality
across a random sample
significantly biases estimates of the private return to
schooling
derived from estimates of wage equations. This
is done using an
unusually rich data set from Ghana (over 4,700 households),
which
includes tests of ability and cognitive skills
administered to 389
survey respondents. When years of schooling are used to
measu:e the
accumulation of human capital, there are virtually
no returns to
schooling in the private sector. Replacement of
years of schooling by
reading and mathematical ability does show positive
returns to
acquired skills, although these rates may be of little
use to
governments making schooling investment decisions because
of the
complexity of such decisions. Many government
investments in
education are designed to raise rates of return to
schooling by
raising school quality, but decisions by individuals
assume that both
rates of return and school quality are exogenous. Thirteen
tables
present data from the analyses. Four appendices provide
supplemental
data concerning the calculation of rates of return. (SLD)
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Living Standar&
Measurement Study
Working Paper No. 76
Schooling, Skills, and the Returns
LI
in Education
to Government Investment
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BEST COPY AViiiLABLE
Schooling, Skills, and the Returns
to Government Investment in Education
An Exploration Using Data from Ghana
The Living Standards Measurement Study
The Living Standards Measurenent Study (Lshi9) was established by the
World Bank in 1980 to explore ways of improving the type and quality of house-
hold data collected by statistical offices in developing countries. Its goal is to foster
increased use of household data as a basis for policy dedsiorunaking. Specifically,
the LSMS is working to develop new methods to monitor progress in raising levels
of living, to identify the consequences for households of past and proposed gov-
ernment policies, and to improve communications between survey statisticians, an-
alysts, and policymakem.
The tsms Worldng Paper series was started to disseminate intermediate prod-
ucts from the ISMS. Publications in the series include critical surveys covering dif-
ferent aspects of the isms data collecdon program and reports on improved
methodologies for using Living Standards Survey (Iss) data. More recent publica-
tions recommend specific survey, questionnaire, and data processing designs, and
demonstrate the breadth of policy analysis that can be carried out using Lis data.
ISMS Working Paper
Number 76
Schooling, Skills, and the Returns
to Goverment Investment in Education
An Exploration Using Data from Ghana
Paul Glewwe
The World Bank
Washington, D.C.
Copyright 0 1991
The International Bank for Reconstruction
and Development/THE WORLD BANK
1818 H Street, N.W.
Washington, D.C. 20433, U.S.A.
All rights reserved
Manufactured in the United States of America
First printing March 1991
To present the results of the Living Standards Measurement Study with the least possible delay, the
typescript of this paper has not been prepared in accordance with the procedures appropriate to formal
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The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s)
and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members
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The World Bank, 66, avenue d'Iéna, 75116 Paris, France.
ISSN: 0253-4517
Paul Glewwe is an economist in the Welfare and Human Resources Division of the World Bank's
Population and Human Resources Department.
Library of Congress Cataloging-in-Publication Data
Glewwe, Paul, 1958-
Schooling, skills, and the returns to government investment in
education : an exploration using data from Ghana / Paul Glewwe.
p. cm.(LSMS working paper, ISSN 0253-4517 ; no. 76)
Includes bibliographical references.
ISBN 0-8213-1764-4
1. EducationEconomic aspectsGhana.
II. Series.
I. Title.
LC67.G45G57
1991
333.4'337'09667dc20
91-8098
CIP
ABSTRACT
for econowic
oftan regarded as essential
Investments in schooling are
in
have high rates of return
implies that such investments
ievelopment, which
and usefulness of
This paper examines the accuracy
developing countries.
the standard human
formal schooling based on
estimates of rates of return to
investigates
Regarding accuracy, it
Mincer.
capital model of Becker and
ability and school quality
for differences in
whether failure to account
to
biases estimates of the private return
sample significantly
across a random
This is done using en
estimates of wage equations.
schooling derived from
used to
When years of schooling are
Ghana.
unusually rich data set from
there are virtually no returns to
accumulation of human capital,
measure the
schooling by reading
Replacement of years of
schooling in the private sector
acquired skills.
ability does show positive returns to
and mathematical
when making
be of little use to governments
However, these rates of return may
complex
because such decisions are much more
schooling investment decisions
In particular, mans government
decisions of individuals.
than the investment
schooling by
designed to raise rates of return to
investments in education are
both rates of
decisions by individuals assume that
raising school quality, but
quality are exogenous.
return and school
ACKNOWLEDGEMENTS
Th:: data used in this paper could not have been collected without the
cooperation of Ghana's Ministry of Education and Culture and the Ghana
Thanks also go to Nick
Stalistical Service, for which I am deeply grateful.
Bennett of the World Bank for help and advice in the data collection.
Finally, I would like to thank Jere Behrman, Jacques van der Gaag,
John Ham, Robert E. B. Lucas, George Psacharopoulos and David RO53 for
Of course, I alone am responsible
comments on earlier drafts of this paper.
for any shortcomings.
TABLE OF CONTENTS
1
Introduction
I.
3
Rates of Return to Schooling Investments
II.
3
The Human Capital Model
4
Innate Ability and School Quality
6
Other Schooling Models
8
Estimation
III.
10
Private Rates of Return to Schooling in Ghana
IV.
11
Conventional Estimates
16
Estimates Using Observed Cognitive Skills
26
Further Examination of the Human Capital Model in Ghana
V.
26
Is There Evidence of Screening or Credentialism?
How are Workers Allocated Between the Public and Private
28
Sectors?
30
Does Experience Matter in Ghana?
32
Rates of Return to Education by Schooling Level
37
Rates of Return to Schooling Investments Reconsidered
VI.
37
Benefits of Schooling
39
Costs of Schooling
41
Social Investment Decisions
45
Summary and Conclusion
VII.
LIST OF TABLES
12
Variable Definitions and Means in Wage Equations
Table 1:
Earnings and Schooling in Ghana: Government and Private Wage
Table 2:
13
Estimates
17
Means of Test Scores and Other Variables by Wage Sector
Table 3:
18
Wages and Cognitive Skills
Table 4:
,
20
Determinants of Cognitive Skills
Table 5:
24
Impact on Math and Reading Skills from One Year of Schooling
Table 6:
24
Rates of Return to Schooling
Table 7:
27
Testing for Credentialism
Table 8:
30
Government Employment vs. Private Sector
Table 9:
32
Table 10: Occupation of Private Sector Wage Earners
Table 11: Determinants of Cognitive Skills with Separate Effects by
34
Level of Education
Table 12: Marginal Impact on Math and Reading Skills from One Year of
35
Schooling
36
Table 13: Private Rates of Return to Schooling by Level of Education.
1 0